Qantas CEO Alan Joyce turns around the airline, and his public image

Qantas CEO Alan Joyce turns around the airline, and his public image

2016 10 24

2016 10 24

Qantas Airways Ltd chief executive Alan Joyce hired bodyguards in 2011 after receiving death threats for his unprecedented grounding of the airline's entire fleet during a bitter industrial dispute.

Five years later, Joyce has largely won over hostile customers, politicians and unions who had called for his head during the national carrier's worst crisis.

Joyce this year delivered record profits and the first dividends since 2009, and on Friday will front the airline's annual meeting in Sydney to unveil plans for growth.

Qantas is targeting expansion in Asia with new services to China and the use of "big data" for the airline's hugely profitable frequent flyer business.

"You have to look at new trends and technologies all the time and make sure you are keeping up with them," Joyce told Reuters in a telephone interview.

"When we created (budget offshoot) Jetstar (in 2004) we decided we should disrupt ourselves before someone else did."

For example, Qantas recently launched a health insurance plan that rewards members with frequent flyer points for staying active as monitored by their mobile phone or wearable devices.

Joyce said sales were "going gangbusters" and were on track to deliver a 2-3 percent share of Australia's $19 billion health insurance market within the first five years.

The carrier is also conducting its first major pilot recruitment drive since 2009 and later this month, will unveil details of the seats and in-flight services for new Boeing 787-9 aircraft it has on order.

The expansion comes after a turnaround strategy that included cutting 10 percent of the workforce, squeezing more seats into domestic aircraft, delaying the delivery of Airbus A380s on order and increasing the hours per day planes fly to raise revenue.

The moves have not been entirely digested by unions. And the airline warned in April that it faced headwinds in both domestic and international markets.

Still, the result of the three-year strategy is that Qantas shares have tripled in value since hitting a record low in 2013 and customer satisfaction is up. Earnings are forecast to stay near all-time highs at a time when regional rivals like Cathay Pacific and Air New Zealand are warning they face profit declines.

The airline's problems are symbolic of the struggles of national carriers brought to their knees by cut-throat competition from fast-growing rivals such as Etihad Airways.

But Qantas's rebound from record losses to record profits in just two years has been exceptional, even by the standards of an industry used to wild swings in the fortunes of some of its largest carriers.

Joyce's controversial 2011 grounding of the fleet, which saw staff locked out and thousands of passengers stranded, wasn't the catalyst for cultural change. It took a bigger crisis driven by a domestic market share battle with Virgin Australia.

As recently as 2014, the airline was still in deep cutting mode. A new wave of staff permanently departed the airline's campus-like headquarters near Sydney Airport most Friday nights.

Joyce would front townhall meetings and tell employees bluntly that more job cuts were needed to keep the Flying Kangaroo flying, said one head office employee.

"Morale certainly took a beating," said the employee, who declined to be identified because he wasn't authorised to speak publicly about the issue.

SCEPTICISM LINGERS

There are signs that trust has not been fully restored.

Linda White, the assistant national secretary of the Australian Services Union, which represents nearly 7,000 Qantas employees, remains sceptical the airline was ever in truly dire straits when it announced 5,000 job cuts in 2014.

"You have to ask yourself whether Qantas's rebound is real or not," White said. "I wonder if it wasn't a faux crisis, making it sounds like it was worse than it really was? The bounce-back is miraculous."

Joyce said unions hadn't recognised the need for change at the time of the 2011 grounding, but after the record loss, relations had improved.

"There is more of a dialogue," said Nathan Safe, the president of the Australia and International Pilots Association, which represents around 2,000 pilots. "If I want to call Alan or send a message I can do that."

Investors have largely backed the turnaround strategy, but the airline remains subject to factors outside its control.

Qantas shares have fallen 23 percent since April, when it warned of weaker domestic market conditions and rising competition in the international market, particularly on flights to the United States and on the kangaroo route between Australia and the UK.

"They are pointing to a more optimistic outlook, but we are waiting for that to come through," said Michael Maughan, a portfolio manager at Nikko Asset Management Australia.

Qantas is now cheaper than peers like Cathay, Air NZ and Singapore Airlines on metrics such as price to earnings.

Sondal Bensan, who oversees the Qantas shareholding at top investor, BT Investment Management, said Qantas' rapid rebound meant it would take longer for investors to accept the current level of earnings could be maintained.

"Part of the reason Qantas is more lowly valued than its peers is that there is no appreciation for the changes that have occurred in its own business through transformation of both domestic and, more importantly, international," said Bensan.

While lower oil prices played a part in helping Qantas bounce back from record A$2.8 billion annual net loss two years ago, successful fuel hedging, cost cuts and a new international alliance with one-time rival Emirates have also played a role.

The end of a bruising price war with Virgin Australia has been another important factor.

Having weathered the storm, Joyce is using his more positive profile in areas of public interest.

Joyce, who is gay, has been a vocal supporter of campaigns for marriage equality in Australia, the recognition of Aboriginal people in the nation's constitution and for women's progress in the corporate world - popular causes with younger employees and customers.

"I think one of the things corporates have to do is be more vocal on these issues," Joyce said.

Joyce has been well rewarded for Qantas' turnaround, taking home $12.96 million ($10 million) last year, and indicated he plans to stick around to enjoy the success.

"We're not putting a time-frame on it," Joyce said of his tenure. "The only thing I've said is I'm pretty young, I've just turned 50. The board appointed me at a young age because they wanted a bit of longevity in the job. The criteria is I would have to be enjoying the job and think I'm contributing which I think is the case."